CurrentOfferings.com Story:

Salesforce.com Trots Out IPO On Its 3rd Try

J. Bonasia, Investors Business Daily, June 23, 2004

Marc Benioff, the effusive chief executive of Salesforce.com, must hope the third time's the charm.

Benioff delayed his software firm's initial public stock offering twice this year amid filing gaffes. Now the timing's right. Salesforce expects to raise as much as $100 million Wednesday through the sale of 10 million shares priced at $11.

The Salesforce IPO has generated solid demand among Wall Street traders, says Jamie Friedman of research firm Fulcrum Global Partners, which does no banking. Morgan Stanley will serve as lead underwriter for the deal.

"This offering looks pretty well subscribed and competitively priced to us," he said. "The reason for such interest is everybody is struggling to find a way to invest in hosted software."

Salesforce.com has pioneered a new low-cost approach to host business software for customer relationship management, or CRM. The company chose that acronym for its ticker symbol.

Clients lease hosted software over the Internet rather than buying licenses. This model does away with the need for users to install and support their programs. And they can change software providers from month to month, which gives them more leverage in negotiating deals.

Some observers say the Salesforce IPO � along with Google's stock debut later this year � could rekindle investor interest in the broader tech sector.

Eighteen stocks are set to launch this week, notes Jeff Hirschkorn of CurrentOfferings.com. About a quarter of them are tech firms. Compare that with most weeks, he says, when there are just four to five IPOs � with one or two tech issues.

"There's a renaissance going on in technology, especially software and semiconductors," Hirschkorn said. "There's a whole array of deals that are taking over the (IPO) calendar."

Salesforce leads the sector for hosted CRM software with 38% of the market, says Friedman. He expects the market to top $250 million in sales this year, and $1 billion by 2007.

Other hosted CRM rivals are set to follow the lead of Salesforce in coming months. RightNow Technologies of Bozeman, Mont., filed for its IPO on May 10. RightNow first filed to go public in 2000, but it pulled back when the tech bubble burst.

Another hosted CRM firm, NetSuite of San Mateo, Calif., plans to take its stock public sometime next year, says CEO Zach Nelson. He expects hosted software to remake the industry over the coming decade. Nelson calls the Salesforce IPO "a bellwether event" for the sector.

"The transformation has already begun and is spreading rapidly," he said. "It's clear that software as a service will be the dominant way that software is delivered."

The hosted upstarts will face stiff competition from entrenched business software vendors that include Siebel Systems (SEBL) and Oracle (ORCL). Both of those firms have launched hybrid units that blend licensed software with hosted versions.

Salesforce posted its first profit of 4 cents per diluted share for fiscal 2004 ended Jan. 31. That was up from a loss of 37 cents the year before. Sales of $96.02 million rose 88% from $50.99 the prior year.

Excluding one-time items, Salesforce earned 7 cents in fiscal 2004, Friedman says, up from a loss of 25 cents the year before. He expects the company to earn 12 cents a share in fiscal 2005 and 29 cents the following year.

Despite such momentum, Benioff has faced a series of setbacks since Salesforce filed to go public last December. In April, federal regulators reportedly required the firm to change the way it accounts for sales commissions.

Then in May, Benioff granted an in-depth interview to The New York Times just weeks before the Salesforce IPO was planned. Securities and Exchange officials warn executives against hyping their stocks in this so-called quiet period. As a result, the May 25 IPO was delayed for a cooling-off phase.

In addition, Benioff sold millions of shares of his firm's stock shortly before it filed to go public on Dec. 18. Although legal, the move raised concerns among some investors.

Now all those storms seem to have blown over, says David Menlow of IPOfinancial.com. Most investors are looking beyond Benioff's exuberance to see his company's promising financial results, he says.

"It appears that the markets are ready to embrace this offering," Menlow said.

Still, some onlookers say Benioff's consummate salesmanship is better suited for the role of chief strategist or chief marketer, rather than chief executive. His decision to grant access to a reporter during the quiet period showed "ridiculously bad" judgment, said Andy Shroepfer, president of Tier1 Research.

"That is something a more polished CEO wouldn't have done," Shroepfer said. "It just shows the risk of having someone who's so optimistic leading the company."

Friedman of Fulcrum Global Partners agrees. He says most investors desire "a certain comfort level" with the decision-making skills of a CEO. "It's not just adequate to be a great marketeer when running a public firm," he said. "You also have to have good judgment."

J. Bonasia covers technology stocks for the Investor�s Business Daily.